Analysis: Facebook’s investors looking for exits

David Gomez, 29th April 2011

A group of Facebook’s investors are looking to get rid of their shares. The slow death of Facebook has begun.

According to Reuters, a group of Facebook shareholders is looking to offload $1 billion worth of shares on the secondary market. Sources with direct knowledge of the situation say that the sale would value the company at more than $70 billion.

This would be one of the largest transactions of Facebook shares to date and it suggests that investors and employees are worried that Facebook’s growth cannot keep up with its market valuation. To some media theorists and critics, the ones that matter anyway, this comes as no surprise.

The sellers have had to lower their price since no one wanted to buy the shares for a ridiculous $90 billion. The asking price of $90 billion would have made Facebook more valuable Time Warner Inc. and News Corp combined. But no investor was enough of a sucker to pay that price.

"At the current valuation where it is, it is really hard to justify the investment," said Sumeet Jain, partner at venture capital firm CMEA Capital, who has examined Facebook deals recently and has taken a pass. "It's hard to imagine it will turn into a $270 billion company in the next few years."

The present deal, which includes stock held by Facebook employees, is waiting for approval from top Facebook executives including Executive Mark Zuckerberg and Chief Financial Officer David Ebersman.

Facebook’s Chief Zuckerberglar declined to comment.

Investors, from venture capital firms to rich individuals to investment banks, have scrambled to get a piece of the privately held company before its expected IPO next year. That’s because after the IPO Facebook could rapidly lose its value just like many other .coms and media companies did during the .com boom and bust in the late 1990’s/early 2000’s.

Facebook raised $500 million from Goldman Sachs Group (which should raise redflags to everyone who cares about the future of Facebook as a form of social media) and Russia's Digital Sky Technologies, for example, giving it a slightly more modest market value of $50 billion. A couple of weeks later, private equity firm General Atlantic injected more cash into the company, valuing it at $65 billion, according to CNBC.

All of these people are rushing to dump money into Facebook before the public gets a chance to buy in. Do you think that maybe they know something that other people don’t? It sounds like Douglas Rushkoff is right about Facebook. Big banks are putting money into Facebook, but it is likely that they are betting against it and not telling their customers.

Someone is going to walk away with a lot of money when Facebook crashes and it probably won’t be the people who buy shares from the public offering.

It is not a guarantee that Facebook will die, but it also hard to believe that the social media website can actually maintain such a high value. Internet marketers have lots of other ways to market to people if Facebook crashes and people will also buy into another social media fad.

The only reason that people would want to sell their Facebook stock is because they want to cash out. The overvalued Facebook bubble is going to burst. If Facebook’s big wigs don’t find a way to transfer their wealth into something else that is more sustainable, then they will all be in for a rude awakening when the whole house of cards comes tumbling down.